S&P Junks Nationalized Bankia, Downgrades Various Other Banks

If according to S&P recently nationalized Bankia is junk, what does that imply about Spain?

S&P takes various rating actions on Spanish banks

Standard & Poor's Ratings Services today said it has lowered its ratings on five Spain-based financial institutions, affirmed the ratings on nine, and maintained the ratings on five on CreditWatch with negative implications (see Ratings List).     
We have also revised down our assessments of the stand-alone credit profiles (SACPs) of six financial institutions, with revisions ranging from one to three notches.    
With the exception of two financial institutions, all ratings either carry a negative outlook or remain on CreditWatch negative.    
The rating actions follow our review of the wider implications for economic and industry risks in the Spanish banking sector after our two-notch downgrade of the Kingdom of Spain (BBB+/Negative/A-2) on April 26, 2012. As a result of the review, we have maintained our Banking Industry Country Risk Assessment (BICRA) on Spain at group '5', but revised our economic risk score, a component of the BICRA, to '6' from '5' (see "BICRA On Spain Maintained At Group 5, Economic Risk Score Revised To '6' Following Sovereign Downgrade," published May 25, 2012, on RatingsDirect on the Global Credit Portal).   
We lowered our long-term counterparty credit ratings on five financial institutions--Bankia S.A., Banco Financiero y de Ahorros S.A., Banca Civica    
S.A. (Civica), Banco Popular Espanol S.A. (Popular), and Bankinter

S.A.--based on our lowering of our assessments of their SACPs. We revised the SACPs following our review of the Spanish banking industry's economic risk, owing to the impact we see on the capital positions of the first four institutions and on the business model of the fifth one. Under our criteria, we use the economic risk score to calibrate the risk weights used for our capital      calculations in several asset classes (see "Banks: Rating Methodology And Assumptions" for definition). As a result of our calculations, the capital positions of the institutions are immediately affected by a revision of the economic risk score.    
We are now for the first time incorporating into the long-term ratings on two financial institutions--Popular, and Bankia, and indirectly its parent BFA--one and two notches respectively of uplift above their SACPs to reflect potential short-term extraordinary support from the Spanish government. We believe that the Spanish government would likely provide short-term support to back any potential capital shortfall at these two institutions if necessary. In addition, our long-term ratings on these two institutions and on Banco de Sabadell S.A. (Sabadell) and Civica benefit from one notch of uplift over  their SACPs for potential extraordinary government support.    
The outlooks on the long-term ratings on six financial institutions--Banco Santander S.A. (and its subsidiaries), Banco Bilbao Vizcaya Argentaria S.A. (BBVA), Popular, Sabadell, Kutxabank S.A., and Bankinter--are negative. They generally reflect the possibility that we could lower the ratings if we perceived increasing pressure on the banks' financial strength in the context of Spain's weakening economic conditions. For Santander (and its subsidiaries) and BBVA, the negative outlooks also reflect the negative outlook on Spain.    

One financial institution, Confederacion Espanola de Cajas de Ahorros, carries a stable outlook, which factors in our view that we are currently unlikely to change our ratings or stand-alone credit profile on CECA in the next few years, under our base-case scenario.   
The ratings on five financial institutions--CaixaBank S.A. and its parent Caja de Ahorros y Pensiones de Barcelona (la caixa), Ibercaja Banco S.A., and Bankia and parent BFA remain on CreditWatch negative. The CreditWatch placements of the ratings on the first three reflect our view that pending acquisitions and their integration could have a negative impact on each entity's creditworthiness. In the case of Bankia and its parent BFA, the CreditWatch listing reflects uncertainties surrounding Bankia's restructuring and recapitalization plan, as well as the implementation risks it may entail.    
Conversely, we kept the ratings on Civica on CreditWatch positive based on our view that its creditworthiness may potentially benefit from its integration into Caixabank, a financially stronger group.   
At the same time, we have also taken negative actions on various hybrid capital instruments issued by several financial institutions. These actions reflect our view of the increased vulnerability to nonpayment of dividends or coupons of the hybrid capital instruments that we see in each particular bank. Currently, we only rate preference shares issued or guaranteed by Santander and its core subsidiary Banco Espanol de Credito S.A. in investment-grade categories. We rate all the other hybrid instruments issued by other Spanish financial institutions in the noninvestment-grade categories. However, we think vulnerability to nonpayment of the dividends or coupons varies between the institutions, which is reflected in the wide range of our ratings, from our 'BB+' issue rating on BBVA and Caixabank's hybrid debt to our 'CCC-' issue rating on BFA's hybrid debt.   
We will publish individual research updates on the banks identified below, including a list of ratings on affiliated entities, as well as the ratings by debt type--senior, subordinated, junior subordinated, and preferred stock.   
The ratings below are counterparty credit ratings.   
Downgraded; CreditWatch Action    
                               To                   From   
Banco Popular Espanol S.A.     BB+/Negative/B       BBB-/Watch Neg/A-3   
Bankinter S.A.                 BB+/Negative/B       BBB-/Watch Neg/A-3   
Downgraded; Remain On CreditWatch   
                               To                   From   
Banca Civica S.A.                 
 Long-Term Counterparty Credit Rating   
                               BB/Watch Pos         BB+/Watch Pos   
Bankia S.A.                    BB+/Watch Neg/B      BBB-/Watch Neg/A-3   
Banco Financiero y de Ahorros S.A.                    
 Long-Term Counterparty Credit Rating   
                               B+/Watch Neg         BB-/Watch Neg   
Affirmed; CreditWatch/Outlook Action   
                               To                   From   
Banco Financiero y de Ahorros S.A.                    
 Short-Term Counterparty Credit Rating   
                               B                    B/Watch Neg   
Banco de Sabadell S.A.         BB+/Negative/B       BB+/Watch Neg/B   
CaixaBank S.A.    
 Short-Term Counterparty Credit Rating   
                               A-2                  A-2/Watch Neg   
Confederacion Espanola de Cajas de Ahorros                                        
                               BBB-/Stable/A-3      BBB-/Watch Neg/A-3   
Kutxabank S.A.                 BBB-/Negative/A-3    BBB-/Watch Neg/A-3   
                               To                   From   
Banco Santander S.A.           A-/Negative/A-2      A-/Negative/A-2   
  Banco Espanol de Credito S.A.   
                               A-/Negative/A-2      A-/Negative/A-2   
  Santander Consumer Finance, S.A.                          
                               BBB+/Negative/A-2    BBB+/Negative/A-2   
Banco Bilbao Vizcaya Argentaria S.A.    
                               BBB+/Negative/A-2    BBB+/Negative/A-2   
Remain On CreditWatch   
                               To                   From   
Banca Civica S.A.                 
 Short-Term Counterparty Credit Rating   
                               B/Watch Pos          B/Watch Pos   
CaixaBank S.A.    
 Long-Term Counterparty Credit Rating   
                               BBB+/Watch Neg       BBB+/Watch Neg   
Caja de Ahorros y Pensiones de Barcelona                           
                               BBB-/Watch Neg/A-3   BBB-/Watch Neg/A-3   
Ibercaja Banco S.A.            BBB-/Watch Neg/A-3   BBB-/Watch Neg/A-3   
NB. This list does not include all ratings affected.